Quarterly earnings have cleared a 'low hurdle' so far, but investors shouldn't feel reassured as cuts to 2023 estimates have yet to come through, Barclays says

• Investors may not be finding much comfort in quarterly earnings reports so far this season, with Barclays seeing "low quality" beats.
• "Although a large majority of companies have beaten the lowered estimates, guidance is mixed and margins pressure is evident," it said.

Stock market investors may not be finding much comfort in quarterly earnings reports so far this season, Barclays said this week, noting that it's seeing "low quality" beats among companies that have reported results.

"Amid persistent macro volatility, early Q3 results have not brought much relief to battered equities," the investment bank said in a note published Friday.

The third-quarter earnings season this week was in its "infancy" as less than 20% of results come in. The pace will accelerate in the upcoming week with Big Tech on deck with results due from Google's parent Alphabet, Amazon, Apple, Facebook's parent Meta, Microsoft, and Twitter.

So far, "Q3 results clear the low hurdle but don't reassure," Emmanuel Cau, head of European equity strategy at Barclays, in a note published Friday. "Although a large majority of companies have beaten the lowered estimates, guidance is mixed and margins pressure is evident. The clearing process will take time, with cuts to 2023 estimates yet to materialise."

Margins are in focus with inflation running at decade-high levels. For S&P 500 companies that have already reported, the blended net profit margin is 12% - a rate that could mark the fifth straight quarter of lower net margins, according to FactSet.

US earnings have been underperforming those from Europe, said Barclays. The per-share earnings growth rate of minus 4.4% from Stateside companies trails that of 3.4% growth year over year in Europe. However, both rates are below consensus estimates of 4% and 7%, respectively.

With the US dollar spiking up about 15% against the euro this year, sales beats are better in Europe as dollar strength hurts US-based multinational companies. Sales growth was 20.3% for companies tracked on the STOXX Europe 600 compared with 6% for S&P 500 companies, the bank said.

Barclays said pressure on margins is more evident as sales expansion is outstripping earnings growth in both regions.

"This strong top line has allowed margins and EPS to be resilient, but a reversal in pricing power, just as demand dries up and costs remain high, could cause a sharp jawbone effect on margins, in our view."

Headline per-share earnings estimates in the US have been whittled down in a larger breadth of sectors than in Europe, with cuts seen in the tech, pharma, and staples sectors, among others.

"Overall, okay early earnings mean the much-anticipated clearing process may be delayed further, but do little to reassure investors amid persistent macro volatility," said Barclays.

In the US, defensive stocks so far held the bulk of earnings beats while cyclical issues lag behind. Within cyclicals, tech and materials are ahead on beats while there's weakness among the industrial and discretionary groups.

Investors in tech stocks appeared spooked on Friday after Snapchat's parent company Snap missed revenue expectations and issued a warning about worsening economic conditions. Snap shares tumbled by more than 30% during Friday's session.